Pension Schemes Bill

Lord Willetts Excerpts

2nd reading
Thursday 18th December 2025 Lords Chamber

[Lord Willetts (Con)]

My Lords, I welcome many features and proposals in this substantial and significant Bill. It does, of course, draw on the work of the previous Government, and indeed continues progress on pensions that has long been conducted on a cross-party basis. I think back to my time as shadow Work and Pensions Secretary 20 years ago, when I worked with the then Pensions Minister James Purnell as he investigated auto-enrolment; I then served in the coalition Cabinet with Sir Steve Webb implementing these proposals. I remember also many years of debating with my noble friend Lady Altmann, and I agree with a lot of what she has just said. I look forward to the maiden contribution from the noble Baroness, Lady White, and I rather suspect that during her time in the No. 10 Policy Unit she may have also been engaged in some of these debates.

The Bill comes before the proposals from the re-established Pensions Commission, and I hope that it will have the flexibility to make it possible to implement ideas that emerge from the Pensions Commission. There is a still a crucial question hanging over the original Pensions Commission work, and it is great to see the noble Baroness, Lady Drake, in her place. She knows that I agonise over whether there was a scenario where defined benefit pension schemes could have been saved 20 years ago. They had become very onerous, and over decades successive Governments had added to the regulations to make the defined benefit promise more and more generous and more and more cast iron. Eventually, they had become so onerous that companies closed them to new members, so what had always been intended as an intergenerational contract was made so generous that it became a once-off special offer for the members of those schemes when they closed. It is possible that a significant reduction in the burdens on employers might have enabled some version of those schemes to survive. That is relevant to today’s debate on measures such as collective DC, which is an attempt to recreate some of those strengths. We went instead to pure DC, and younger employees have not been able to enjoy anything like the pension promise of older members of company schemes.

We did some work on this at the Resolution Foundation back in 2023. I cannot remember what has happened to the chief executive at the time, but perhaps I can quote some figures from our intergenerational audit in 2023. We estimated that millennials born in the early 1980s will reach the age of 60 with, on average, £45,000 less in pension assets than boomers born 20 years earlier. That is the challenge of boosting the pensions savings of the younger generation, which I hope is the cross-party basis for this legislation.

A particularly acute example of how this generational unfairness can work is that some of those defined benefit schemes closed to new members were in deficit. The company plugged the deficit gap by using revenues generated by all of its workers, including the younger workers, which it put into the defined benefit scheme available only to some of the workers. We now have some very interesting examples of what happens when these schemes find themselves now, thank heavens, in surplus. The recent Stagecoach deal is a very interesting example; it has been widely welcomed in the media, and in many ways it is good news. However, the Stagecoach pensions scheme closed to new members in 2017. After that, the younger workers had no opportunity to join it. There will now be a distribution of the surplus. I hope the Minister might comment on the feasibility of some of the uses for that surplus, which are not in the current provisions. We heard from my noble friend Lady Stedman-Scott about the importance of pension adequacy. Would it be acceptable for one use of the surplus to be to pay increased auto-enrolled employer contributions into the pension schemes of employees of Stagecoach who joined post 2017 and were therefore not in the earlier scheme? Some of their work will have generated the revenues that created the surplus. Would helping them through the successful auto-enrolment model not be one way forward? Another use, which is being talked about, is funding a collective DC pension arrangement to help get those schemes going. I very much hope we will move beyond the single CDC we have at the moment with Royal Mail. Pensions UK has an interesting proposal for some tax waivers for extra contributions going into CDC, especially out of pension surpluses. Again, I hope the Minister might be able to give that a welcome.

The closure of DB schemes and the creation of pure DC was the background to some of the big shifts we have been talking about. There has been a massive shift from equities into bonds and away from UK assets into assets held abroad. We are talking about this as if it is just rational capitalism working and trustees exercising their discretion, but I have a lot of sympathy with the points that my noble friend Lady Altmann made, because the British model is a very unusual model. I believe it is largely to be explained, not by some higher economic rationality, but by the strange features of the closure of DB and moving to pure DC. It means that the percentage invested in UK equity fell from 50% 20 years ago to 5% now. That makes us a complete outlier across the OECD for the willingness of our pension funds to invest in UK assets.

This is not what the pension fund members and contributors expect. As we know from recent polling published by the London Stock Exchange, when you do a survey of 1,000 current members of workplace pension schemes and ask them how much of their pension contributions they think are going into British business, their estimate is 41%—nearly 10 times larger than what is actually happening. If you ask them whether they think their pension scheme should invest more in British industry, even if this would involve some sacrifice in their future pensions, 61% say yes.

Most funded pension schemes in other advanced western countries are much more deeply rooted in their own national economy and realise that part of what they are trying to do is create the environment in which their national pensioners thrive in a healthy economy in a generation’s time. It is absolutely right to have this debate now in Britain and, for me, having been involved—and still being involved, in different ways—in the science base and research, it is deeply frustrating that we have one of the world’s great research bases and one of its great financial centres but we have totally failed to link the research base with the commercial investors in the City. That needs to change.

Successive Chancellors have been trying to do this, and of course we have had the Mansion House compact and now have the Mansion House Accord. There is now a fraught debate about mandation, and I realise all the delicacies about it. I personally think that the recent proposal from the London Stock Exchange is a very interesting way forward: not specifying the asset allocation by type of asset but saying that, whatever asset allocation has been decided upon, 25% should go into UK assets—absolutely not with full mandation but expecting this as a provision for UK DC default funds. So I hope the Minister will say that the Government are considering this proposal from the London Stock Exchange, now backed by 250 founders and chief executives of UK companies. I hope she will assure the House that, if that proposal were to go forward, this Bill would provide the necessary legislative framework, which I am assured is not an ambitious set of changes. There are things that can be done to secure a far greater understanding of the value of investing in British industry and other British assets than we have seen over the last few years.

I will briefly raise one other issue involving the other Pensions Commission: the investigation of pension age. I hope the Minister may be able to say something about this, because the clock is ticking. There was a half-hearted partial announcement of the decision that the pension age should go up further under the previous Government, which has not been followed up. My view is that that debate has got totally trapped in a preoccupation with life expectancy and using projected life expectancy as the only metric—what I call RIP minus X—or formula that has to be used. What pension age you set is not simply a mechanical calculation around life expectancy but an important fiscal decision. As in all other decisions, there are other factors, including long-term public expenditure costs and the likely income of pensioners from other sources.

I hope therefore that we will not find that we look back on this debate and ask why we missed another opportunity to prepare the ground and properly consider whether, given the fiscal constraints that any Government face, we should also be considering increases in the pension age.

Post-16 Education and Skills Strategy

Lord Willetts Excerpts

Wednesday 22nd October 2025 Lords Chamber

[Baroness Smith of Malvern (Lab)]

There will be opportunities through V-levels for those interested in vocational routes into the creative industries. There will be opportunities through some of the sector skills packages—not least, for example, in the area of digital—to support the creative industries. There is, of course, a sector skills plan as part of the creative industries element of the Government’s industrial strategy.

[Lord Willetts (Con)]

My Lords, I particularly welcome the increase in fees for students, as that sets the resources available for the education of students without affecting the monthly repayments that graduates subsequently make. However, the international student levy will take away quite a bit of that resource, so does the Minister agree that the real resource available for educating students overall will continue to fall? Does she accept that that cannot carry on indefinitely?

I also welcome the recognition in the White Paper that there is no viable alternative to the fees and loans system that we have now had for over 20 years. But is the Minister concerned that there are still misunderstandings and misplaced anxieties that it is somehow a fixed amount of debt like a credit card debt or stops you getting a mortgage? If anything, those concerns appear to be increasing. Will the DfE energetically commit to explaining to young people the realities of how the system works?

[Baroness Smith of Malvern (Lab)]

On the noble Lord’s first point, no, I do not accept that an index-linked increase in tuition fees—a certainty of funding that no other public or private sector organisations, or very few, could have committed to them—will leave universities worse off. That is notwithstanding this Government’s decision that in order to reinstate the maintenance grants removed by the last Government we will use a levy on international students to reintroduce targeted maintenance grants for students. Of course, asking students to invest in their education is right, alongside government investment, but we need to make sure that that world-leading higher education system is open to all who can benefit from it and that we close the gap in access, which has persisted for too long.

Workers (Economic Affairs Committee Report)

Lord Willetts Excerpts

Thursday 8th February 2024 Lords Chamber

[Lord Willetts (Con)]

My Lords, I congratulate my noble friend Lord Bridges on an excellent opening to this debate and all members of the committee on a really topical and important review—made even more topical by Monday’s ONS announcements, revealing how little we understand what is happening to the labour market and making his call for better data particularly important. I would like to draw on my position as president of the Resolution Foundation to make four practical proposals as to how we might tackle this problem by intervening at different ages of the life cycle.

First, among young people aged 18 to 24, we seem to have an increasing problem of inactivity, particularly due to ill health, which has doubled, and within that mental ill-health. There is clearly a complex link with low skills because, by and large, more educated young people, even if they report mental health problems, appear to be more likely to remain in work and in the workforce, so low skills and inactivity are linked to ill health, particularly mental ill-health. It is very tricky to challenge this, but I am increasingly concerned by the Government’s proposal to defund 200,000 BTECs—the 200,000 young people studying BTECs, a vocational qualification introduced back in the 1980s—in the expectation that they will instead do T-levels, which are currently taken up by 5,000 people and are a far more academic qualification. There is a real risk that the defunding of BTECs over the next two years will contribute to a rise in inactivity and worklessness among young people, as they find that there is no suitable educational altercation which justifies their remaining in study until the age of 18. I hope that the Minister will give us assurances that the effects of this phasing out of the funding of BTECs will not lead to an increase in worklessness.

Secondly, for women—it is preponderantly women—with children, especially less well-paid women working relatively small hours for low pay and unemployed mothers with young children, the Government have an excellent initiative to increase access to formal childcare. However, low-paid and less educated mothers are least likely to be accessing formal childcare; their childcare arrangements tend to be less formal and, therefore, they are least likely to be helped by the Government’s initiative, however welcome it is. There are two specific things that could be done to help them. First, they are very likely to be using childminders, but the regulations about childminding that is accessible and will be publicly funded are very strict, so a more liberal regime on funding childminding might help a group whom it would be particularly beneficial to get into the workforce. Secondly, although universal credit also helps with childcare costs, the processes are very bureaucratic. There is no specifically identified line of universal credit for your childcare and, if you increase your hours, there will be an unpredictable reduction in your total universal credit entitlement, even if you are using childcare to reduce your hours. Therefore, the free childcare option that the Government are currently pursuing is not sufficient to tackle inactivity among less-educated low-paid mothers with children.

Thirdly, on sickness and the links between sickness and inactivity, the committee draws attention to the fact that, sadly, being long-term sick seems to lead to people disengaging from the labour market. We on these Benches are always very wary of more labour market regulation—our labour market is already very heavily regulated—but, at the moment, when you cease receiving sick pay from your employer and go on to sickness benefit, you lose all rights to remain in contact with, and have the potential to return to, your employer. There is an argument for a right to return for the long-term sick, in order to keep them in touch with their employer. Such an initiative that is worth considering.

Fourthly, on older people, as the committee explains, the British model, with a higher rate of pension income from funded savings and less dependence on state benefits means that the benefit regime is less shaping behaviour—you keep on working until you get your benefit—and behaviour is more influenced by private pension savings. The Government already have some proposals in place for increasing the age at which you can access your private pension savings without tax penalty to 57. There is a strong case for raising that age further, so that if you wish to access your pension savings, you have to remain in work—you are not able to do so without a significant tax penalty—until you are even older than 57. I have always been rather a hardliner on raising the pension age. I personally think that the obvious way to help offset the enormous costs of the triple lock is to carry on raising the pension age as rapidly as possible. At least the proposal is to link the tax relief—the tax benefits—to pension age minus 10, but I think pension age minus 10 is too generous; we should have a more ambitious goal so that people are able to access their funded savings only at a later age.

Finally, I very much agree with the points in the committee’s report that, although there is frustration about what has happened to the stock of economically inactive people, we should focus in particular on the flow of people into economic activity; there is more we can do there and that should be the policy priority. Although it is rather a cliché at the end of every piece of policy research to say that more data is needed, on this occasion it really is very important. As my noble friend explained in his powerful opening contribution, the labour market statistics, particularly the Labour Force Survey, are now in a total mess. Nobody can make sense of what is happening, the ONS has confessed it cannot really understand it, and this is an area where more data and research are certainly needed.